Lord Rix: Before the noble Baroness sits down, perhaps she can explain for a simple soul like me the maximum amount of money that can be earned by a person with learning disability who works over five hours but is unable to work up to 16 hours. What is the maximum amount of support that can be given?

Baroness Hollis of Heigham: A person with a learning disability may be on severe disablement allowance, which is topped up by income support if the SDA is below his income support entitlement. If he is not living at home with parents he may be entitled to housing benefit and CTB and keep the first £15 of his earnings.

Lord Rix: I cannot over-emphasise the benefits of part-time work both to disabled individuals, particularly learning disabled individuals, and society. I hope that the Minister will think again about what support can be offered to disabled people who work part time, but I am delighted to hear the figures that she has quoted. No doubt the subject will be revisited. I believe that the Minister is working with the Disability Benefits Forum in this regard. For now, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Goodhart moved Amendment No. 57:

Before Clause 14, insert the following new clause--

HOUSING COSTS

(" . In section 135 of the Social Security Contributions and Benefits Act 1992 (the applicable amount) after subsection (1) there shall be inserted--
"(1A) The applicable amount prescribed for a working families' tax credit and a disabled person's tax credit shall include an amount for prescribed housing costs."").

The noble Lord said: This is a probing amendment only because I recognise that in practical terms it is quite impossible to include a housing cost element in working families' tax credit at this stage. Therefore, this is purely a matter for the future rather than inclusion in this Bill.

This was an issue taken up by my honourable friend Professor Steven Webb in the other place. While the taper is reduced from 70 to 55 per cent for working

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families' tax credit as compared with family credit, an increase in the claimant's earnings will also lead to the loss of housing and council tax benefits. For people who receive all three--working families' tax credit, housing benefit and council tax benefit--and also pay PAYE and national insurance contributions, the marginal rate of tax (to use that shorthand) is reduced only from 96.9 to 95.3 per cent. If the person in the same situation does not receive council tax benefit it is reduced only from 92.7 to 89 per cent.

There is also a problem with home owners who have mortgages. They receive payment of their mortgage interest under income support but not under family credit now or, as proposed, working families' tax credit. There is therefore a disincentive for home owners to get low-paid jobs. Professor Webb says that the only people in his constituency, where the unemployment rate is extremely low, who cannot afford to take jobs are those with mortgages.

These problems would be reduced if an element of housing costs was built into the definition of the applicable amount. Almost everyone who receives these tax credits has housing costs in the form of either rent or mortgage interest. To replace housing benefit in part by a housing element in tax credits would reduce the number of people with extremely high marginal rates, which we all recognise is a serious disincentive. The housing element would also contribute to mortgage costs and give better incentives to home owners to seek low-paid jobs.

I recognise the enormous difficulties in the reform of housing benefit due to great differences in rents and housing values in different parts of the country. To take a slightly random example, we all know that the housing values in Hartlepool are a great deal lower than those in, let us say, Notting Hill. The housing element in the working families' tax credit would have to be much less flexible and less geared to actual costs than housing benefit. I do not believe that it could completely replace housing benefit. But even if the housing element in tax credits would have to be supplemented by a continuing housing benefit in some places, it would reduce the problem of the very high marginal rates and remove the disincentive to home owners with mortgages.

I understand that the Government are intending to review housing benefit. Is the Minister in a position to undertake that in the course of that review they will at least consider the possibility of incorporating a housing element in tax credits? I beg to move.

Lord Astor of Hever: I understand the reasons for the probing amendment put forward by the Liberal Democrats. They are right to raise the issue of housing costs and work incentives for lower income families. Labour's manifesto maintained that its housing strategy would address the needs of home owners and tenants alike. However, housing costs have not been considered in the Bill. After all, housing benefit forms one of the largest chunks of the social security budget. As a result, a confused position is already more confused. One wonders whether some of the people the Bill aims to help will be better off.

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It seems odd that someone can be given the working families' tax credit or the disabled person's tax credit with one hand but could find his local council reducing his housing benefit by a corresponding amount with the other. If the Government are trying to cut the £12 billion housing benefit bill, this seems no way to do it.

More importantly, if local councils deduct from housing benefit the same amount as the tax credit, can the Minister tell the House how that will act as an incentive to get people back to work, which is the objective of the Bill?

Baroness Hollis of Heigham: The clause is similar to that introduced on Report in the other House. As there, it is aimed at probing the intentions of the Government on the way that housing benefit will interact with the WFTC and the DPTC. It is the interaction of benefit tapers, such as that for housing benefit with the two tax credits, which produce high marginal deduction rates. Academic research--some of it by the noble Lord's honourable friend Professor Steven Webb--indicates that the difficulties of replacing out-of-work help for mortgage costs may be a barrier to entering work.

We can all accept that there is a problem by definition. However, it may be worth reminding the Committee that the Liberal Democrats' proposals outlined by Professor Webb could be very costly. The figures I have are that a flat-rate £30 mortgage interest credit would cost around £1.1 billion; and, if applied to rented accommodation net of HB, would cost a further £0.6 billion, the two together totalling £1.75 billion. We are talking about very large sums, even at a flat-rate element of something like £30 a week.

None the less, I wonder whether Members of the Committee are beginning to overestimate the problem we now face. The new tax credits already do two things that help in this area. The more generous help that the credits provide will help to float more people off the interaction of those three tapers, which the noble Lord, Lord Goodhart, rightly identified as producing high marginal deduction rates (MDRs). At present 25 per cent of people on family credit also claim and are entitled to HB and CTB; and for them we have high marginal deduction rates. That is undeniable.

In future, as a result of the more generous lift of WFTC, instead of 25 per cent of people claiming family credit, housing benefit and council tax benefit, the figure is likely to be 2 per cent. So the proportion of people affected by very high MDRs will diminish sharply. That is one of the good things that can come from the problems that we discussed during the first day in Committee relating to shallow tapers and greater generosity with WFTC. Fewer people will be affected by the triple taper.

Secondly, the lower taper within WFTC and DPTC--55 per cent. compared with 70 per cent at present--will mean not only that fewer people will be affected but that fewer people who are affected will see high marginal deduction rates. Under family credit, three-quarters of a million people face MDRs of 70 per cent plus, but under WFTC it will be only one-quarter of a million. That is a fall of two-thirds, or half a million people. Therefore,

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in both ways the generosity of the basic credit and the greater shallowness of the taper will reduce the problem considerably.

As the Economic and Fiscal Strategy Report made clear, the Government believe that Britain's current housing system is failing those in need. Our ambition is to modernise housing policy; to make the housing and labour markets fairer for all concerned. In his Budget Statement, the Chancellor indicated that over time he wants the Government's better deal for work to include help with housing costs for both renters and homeowners going back to work. But personal housing support will need to be reformed gradually. The current system of housing benefit is too complicated to be integrated with WFTC and DPTC. Even if personal housing support were simplified, the systems for administering the element for housing costs in the two tax credits will take the IR many years to restore.

Furthermore, the current structure for social rents would need to be reformed before we could move in this direction. The Government have been working in partnership with local authorities to develop proposals for the certification and improvement of the existing system of housing benefit. For the future, the Government are looking at options for strengthening the link between social rent and the size, location and condition of properties. The Government will consider further reforms over the coming months and will announce details in a housing policy Green Paper later in the year. There will be extensive consultation with all concerned.

Given, first, that the problem is much less severe; secondly, the imputed cost of what might be the import of the Liberal Democrat amendment; and, thirdly, the statement of intent in the Chancellor's Budget, I hope that the noble Lord will be able to withdraw his amendment.